Smaller agencies find it harder to keep up with their larger counterparts both in covering payroll increases and general expenses and in satisfying the carriers’ appetite for growth.

Clusters have evolved in self-defense for small agencies to have enough carriers to be competitive and to satisfy the volume needs of those carriers.

We participated in our first cluster over 40 years ago. Today’s clusters are motivated by the same things:

1. We need a wider variety of carriers available to satisfy the needs of all of our clients.

2. Our carriers need (demand) growth and we are incapable of managing that growth alone with each of our carriers every year.

3. If we combine with a carrier our loss ratio will be distributed among a larger premium volume and one loss will not have as great a negative reaction as if we were alone.

4. If we select our partners carefully, we can enjoy larger contingency shares of a larger volume.

The first three reasons are commendable and correct. The last reason is correct, but fallacious. The insurance companies put a lot of pressure on its regional managers to grow through larger, rather than more, agencies. The regional management can be viewed as managing a larger volume with fewer agents by combining agencies into clusters. Unfortunately, the owners of each of the cluster agencies still generally interact the same way with carrier staff as they did when they were standing on their own code. The insurance companies have realized over the years that they are doing the same amount of underwriting and administration for exactly the same premium volume and have the honor of paying higher contingency payouts for the privilege.

Many carriers see clustering as just a way of taking more carrier money for the same volume of premium and clients. Those companies have either stopped accepting clusters OR they are putting growth demands on the clusters (as they do on individual agencies) with similar negative results if growth does not occur. So for stable agencies and clusters, the results are the same, only over a longer period. The only exception is when clustering agencies close some smaller carriers in favor of the larger ones who then experience the growth spurts that they desire.


Clustering, or a variation of it (see below), allows smaller agencies to continue to operate without the threat of closure for lack of volume by carriers requiring growth. Agencies can continue through the balance of the agent’s career (or life) and can continue to perpetuate themselves within a group.

Clustering, or a variation of it (see below), gives a one-owner agency something that he has never had – someone else to talk to, gaining advice from other agents who are NOT in direct competition and are willing to help, as needed. This doesn’t sound like much, but it is IMMENSE for agents who have been alone for twenty or thirty years and need help.

More agents than will admit it cannot sell their agencies. The return won’t be enough to support the agent through his/her retirement. They MUST continue the agency and a cluster (or the variation explained below) can provide needed support during declining years and provide a buying entity when the need finally arises for a sale.


While clusters give the individual agencies the benefit of more carriers and, perhaps, greater contingency income, few agents understand the time commitment needed to keep a cluster operational if it is more than simply brokering business together. The most frequent negative comment is that each owner, used to ‘driving his own bus’, now has to follow the route laid out by a group of agents, each of whom absolutely know that theirs is the right an only way to operate. Clustering combines the worst parts of mergers without the benefits of real ownership (stronger asset value in a larger firm and stronger profits and earnings from the economies of scale created in most mergers). The owners’ time used to create and manage a cluster is much greater than anyone expects unless a single participant becomes the general manager and effectively “runs” the cluster.

Agency Consulting Group, Inc. developed its FAIR SHARE CONTINGENCY DISTRIBUTION PROGRAMĀ© in response to another problem, cluster members whose loss ratios reduce contingency income while their premium volumes demand higher percentages of contingency income than they would have gotten on their own. This program distributes contingency including loss ratio relativity. Call us 800 779 2430 for more information.


Over 20 years ago we met with several insurance companies who had a problem (see above) with clustering, equating it to brokering of business when agencies were free to place business in their own carriers or in the carriers of their partners without restriction.

However, the same carriers had no problem if the agencies in question were to have merged. So we introduced the concept of the Virtual Insurance Agency that combines the major benefits of merging with those of clusters.

Each of the participating agencies merge their agencies into a single corporate entity.

Each member participates on a one-member, one vote basis (no one member or entity controls a VIA). All members are on the Board of the VIA.

Only VIA carriers may be used by the ‘branches’ of the VIA.

Each ‘branch’ is operated semi-independently with profits from than entity remaining with the controlling owner of that branch.

The Board decides on the common economies of scale that can cost every branch less than they paid for that function previously (accounting, legal, automation, claims, service are some of the functions that can be combined for economies of scale). The owners are more likely to adapt because all increased profit within the branch stays in the branch. The VIA is a break-even entity.

Upon death or retirement, if the managing partner in a branch doesn’t have a successor, the VIA guarantees to buy the stock and places a new manager in that branch (who can attain ownership if he can grow the branch).

Formal or informal clusters still arise and grow. The unsuccessful clusters collapse within five or ten years. The successful clusters will, eventually, merge or get bought out by the younger members who remain after the retirement of the older members. But be careful that you are joining or creating a cluster for the right reasons. Otherwise it’s a fool’s errand that will cost you dearly in your time spent on unproductive efforts.